Auto Sales Plunge In January, but It Could Have Been Worse

The end of zero-percent financing makes for a tough first month.

U.S. auto sales plunged across the board in January but were better than some analysts had feared, as the hangover from zero-percent financing in the fourth quarter proved a little milder than expected.

"They were better than most analysts and companies had thought," said David Healy, an analyst at Burnham Securities. "We're looking at a rate of 16.3 million total sales in January, which isn't bad given that we're in a recession and there are no new financing deals."

Auto sales rose to record levels late last year as many companies offered free financing in the wake of the terrorist attacks. That ate into sales that would have taken place in the first quarter of this year. Still, many analysts, along with the companies themselves, said the drop wasn't as bad as they'd anticipated.

Still, the No. 2 automaker said sales to retail customers were stronger than expected in January and it revised upward its 2002 sales forecast. The firm now expects to sell 16 million units this year, up 500,000 from the firm's previous forecast but still down from the 17.5 million units sold last year. Ford said a string of better-than-expected data are reasons for raising sales estimates.

The company's foreign units performed very well, with sales of Land Rovers soaring by 133%. Jaguar saw an 88% increase and Volvo was about flat with last year.

"There is increasing evidence supporting the view that as far as the US economy is concerned the worst is behind us," said George Pipas, Ford's sales analysis manager during a conference call.

Pipas said he is reasonably confident a recovery will take place but said the pace of that recovery would be modest. He noted that the "competitive landscape is no less intense" and that pricing is a "double edged sword."

Ford has been hit hard by increased competition and the economic slump, prompting it to initiate a turnaround plan, which includes the closure of up to seven North American plants and 35,000 job cuts worldwide.

General Motors, ( GM)which was generally perceived as the winner of 2001's price war, reported the steepest decline in U.S. sales-13% - as sales to car rental agencies fell and zero-percent financing incentives came to an end. The company said car sales fell 34.2% to 116,633 units in January, while total truck sales dropped 10% to 183,001 units.

Despite that, GM raised its first-quarter North American vehicle production forecast to 1.32 million units from 1.30 million previously. The firm produced 1.214 million vehicles in first quarter last year.

"As the effect of the zero percent financing binge wears off and the economy starts to recover we'll be looking at stronger sales quarter by quarter," noted Healy.

At Chrysler, ( DCX)the American unit of DaimlerCrysler, U.S. sales fell 9%, with car sales falling 8% to 39,614 vehicles and truck sales falling 9% to 106,785. The company has been struggling more than the others and the decline was much narrower than analysts had predicted.

"While we would have liked to start off the year at a higher level, we are in an intensely competitive market and have developed a strategy for all three brands to regain their momentum quickly,'' said Gary Dilts, Senior Vice President of Sales.

Michael Bruynesteyn, an analyst at Prudential Securities, said there were "no big surprises" in the data released Friday but pointed out that the big three automakers' market share has now dropped below 60% "for the first time since I can remember."

German automaker Volkswagen AG's U.S. sales rose by 6% compared to January of last year led by a 65.2% increase in sales of its Passat. Audi of America Inc. posted a 2.5% rise in sales from last year, its best January on record. BMW of North America Inc. said sales rose 16%, although Porsche Cars North America Inc. fell 27.5%.